Wes Hickman (202-224-5972) or Kevin Bishop (864-250-1417)
-- Social Security modernization proponents have received a boost from an unlikely source – the very agency charged with administering the program -- after the agency completed an analysis of legislation sponsored by U.S. Senator Lindsey Graham (R-South Carolina).
Graham met today and discussed the analysis with leaders of the Alliance for Worker Retirement Security (AWRS), a business group supporting Social Security modernization, in his Senate office.
On this day one year ago, Graham introduced legislation (S.1878) which combines the best of traditional Social Security system with the opportunity for younger workers at all income levels to build a retirement nest egg through personal accounts.
Personal accounts would provide safe investment options similar to those now available to federal employees and improve on a system that will provide low growth rates for younger workers. They also provide stronger anti-poverty protections than are present in today’s system, a fact confirmed by the Social Security analysis.
Under the plan, current retirees, workers 55 and older, and persons with disabilities would remain in today’s system with no changes to benefits, taxes, or annual cost of living adjustments.
The plan gives workers 54 and younger the choice to join a modernized system that provides future retirees an inflation-indexed traditional benefit from Social Security that is at least as high as the benefits received by retirees today plus a personal retirement account. Workers would have the opportunity to set aside 4 percentage points of their Social Security taxes (up to $1,300 annually) in a personal retirement account that they would own and control.
Workers could invest their contributions in low-cost, diversified stock and bond index funds. These investments would build value over time. At retirement, workers could draw on their account assets to help pay their monthly Social Security benefits or pass their account onto their heirs.
Time is of the essence. The current Social Security system will pay out more in benefits than it collects in taxes in 2018 and becomes insolvent by 2042.
Among the findings from the Social Security Administration’s analysis of Graham’s bill:
- Restores Social Security surpluses rather than produce ever increasing deficits. Under the current system there will be a $588 billion (in $2003) deficit in 2061. Under the Graham plan there will be a $100 billion surplus.
- Make the system solvent by placing Social Security on solid financial footing permanently at a cost that is substantially less than maintaining the current system. To maintain the current system permanently, it will take $10 trillion dollars, while implementing the Graham plan will cost less than $1.7 trillion.
- Strengthens the social safety net by making benefits more progressive and provides higher benefits to low-income workers.
- Lifts roughly 688,000 seniors out of poverty by 2061. The projected elderly poverty rate would be reduced from 2.7 percent under the benefits the current system can pay to 1.1 percent.
- Improves return on worker investment. By 2061 average expected benefits would be over 25 percent higher than the benefits today’s system can afford at current tax rates.
- Because workers would own their personal retirement accounts, the plan creates an average bequest at death of nearly $5,000 (in 2004 dollars) for workers retiring in 2022 and over $52,000 for workers retiring in 2061.
“Sustained solvency of Social Security is the greatest challenge we face,” said Graham. “This report shows that balanced reform plans – including plans put forth by the President’s Commission to Strengthen Social Security -- can protect our most vulnerable retirees, while ensuring that younger workers and future generations are not buried under a mountain of debt. To do nothing is political malpractice.”